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Top Bush Health Adviser Stands to Gain Personally from Candidate's Medicare Plan

Gail Wilensky holds shares and options in health care companies valued at $10.5 million; another Bush adviser, lobbyist Deborah Steelman, collected $6.5 million in fees from health care special interests

Click here for the News Release

The prescription drug and Medicare reform proposal recently unveiled by Republican presidential candidate George W. Bush was shaped by Gail R. Wilensky, a senior adviser (1) who has a substantial financial interest in the enactment of such a program. Wilensky – who is Bush's leading spokesperson on Medicare issues – holds shares and stock options currently valued at $10.5 million in the managed care, insurance, nursing home and drug industries that could benefit handsomely from the Bush plan.

Another health care adviser to the Bush campaign, super lobbyist Deborah Steelman, has received $6.5 million in lobbying fees from drug, health insurance and managed care companies and associations in the last three years. Most, if not all, of her clients have a direct financial stake in the outcome of the Medicare debate – and they would reap significant rewards under the Bush proposal.

Wilensky is an academic and policy expert at the non-profit organization, Project HOPE. At the same time, she serves on the Board of Directors and holds stock in health care companies that provide her with nearly $200,000 in annual director's fees. She also has been recently reprimanded by key Republican and Democratic lawmakers for chairing a congressional advisory committee that appears to be "an organized forum for the voice of self-interested lobbying." And, she's an architect of Bush's Medicare plan that would give an additional $40 billion to managed care companies – money that a federal inspector general says the companies don't need or deserve.

Wilensky's single biggest financial interest in the managed care industry comes from her link to UnitedHealth Group, the nation's second-largest managed care company. (2) She serves on the Board of Directors of UnitedHealth Group and she owns shares and stock options in UnitedHealth valued at $5 million, based on Sept. 20 market prices. Wilensky is a director of at least seven other health care companies, in which she owns shares or stock options valued at $5.5 million on Sept. 20. (3) Appendix A provides a brief description of each company.

These corporate relationships have proven profitable for Wilensky. For example, on May 12, she exercised her option to acquire 16,000 shares of UnitedHealth Group stock at a preset price of $49.50 per share. Wilensky then sold that stock for $70 per share, which means she realized a $328,000 profit. (4) (Public Citizen is not in a position to calculate Wilensky's profits should she exercise all her options. Wilensky would have to disclose the price all her options were granted at first.)

Wilensky has a financial interest in these companies beyond the 297,442 shares and options she holds. This year, she stands to earn $141,000 in retainer fees for serving on the Board of Directors of eight companies. In addition, she will probably net at least $50,000 in fees for attending board meetings. (5) As a director, she will also be granted additional stock options. In 1999, for example, Wilensky received more than 50,000 such options.

Wilensky began this lucrative association with health care companies as soon as she left her job as a policy development advisor to President George Bush in January 1993. (Before that she was the administrator of the Health Care Financing Administration, which oversees the Medicare program.) In January 1993, she was elected to the boards of UnitedHealth Group and Advanced Tissue Sciences, a California company that does controversial stem cell research in its quest to reproduce major new organs. (8) That July, she also joined the board of Syncor, another California company that manufactures radioactive pharmaceuticals.

Wilensky's conflict of interest appears more overt than that of vice presidential candidate Dick Cheney, who was pressured into giving up his 233,000 stock options with a market value of $3.6 million in Halliburton, an energy services company, because he might shape energy policy as vice president. (9) In Wilensky's case, she is already shaping policy that could directly benefit her personal finances.

Bush's Medicare reform plan that Wilensky helped craft was applauded by health insurers and managed care companies when it was unveiled on Sept. 6. Why? Because it would subsidize private health insurers to provide varying drug coverage plans for seniors, rather than support a defined government benefit under Medicare that might lead to government-drug industry price negotiations. The Bush plan also would steer more seniors into HMOs and offer the managed care companies additional billions to provide health services to elderly Americans. In effect, the Bush proposal is an attempt to start privatizing the Medicare program.

Specifically, Bush's plan calls for spending $48 billion over four years to subsidize prescription drug coverage for low-income seniors through private insurers. It also calls for adding $40 billion to Medicare for increased payments to doctors, hospitals, HMOs and nursing homes that were reduced under the Balanced Budget Act of 1997.

Bush's plan was praised by Charles N. Kahn III, president of the Health Insurance Association of America. (10) (UnitedHealth Group is a member of HIAA.) It also received positive reviews from Karen Ignagni, president of the American Association of Health Plans, which represents HMOs. (11) (One of UnitedHealth Group's subsidiaries – Ingenix – is a member of AAHP.)

The Bush plan not only benefits insurers and HMOs, it is also much more acceptable to drug companies than Vice President Gore's prescription drug plan. "The enthusiasm of drug company investors and executives for Bush's plan highlights its weakness: It would reduce the government's power to negotiate price discounts," wrote the Los Angeles Times in a Sept. 11 editorial.

Coincidentally, since Bush secured the Republican nomination in early March, the stock prices of UnitedHealth (symbol: UNH), Syncor (SCOR) and Gentiva Health Services (GTIV) have increased by approximately 80 percent, 200 percent, and 100 percent respectively.

At the same time, it should be noted that Wilensky's UnitedHealth has been dumping seniors enrolled in managed care programs established under Medicare (Medicare+Choice) because the company claims that it receives inadequate reimbursement rates from the federal government. (12)

On June 30, UnitedHealthcare – a subsidiary of UnitedHealth Group – announced that next year it would terminate its Medicare+Choice contracts in 21 counties, thereby dismantling benefits to 56,000 senior citizens. CEO Jeannine Rivet described the decision as an "unfortunate blow for senior citizens." (13)

But the claims of companies like UnitedHealth – that they haven't been paid enough by Medicare since Congress enacted the Balanced Budget Act of 1997 – are bogus, according to a new report by the Inspector General of the Department of Health and Human Services. (14)

In a strongly worded Sept. 18 report, Inspector General June Gibbs Brown said the facts suggest just the opposite of what the industry contends about Medicare reimbursement. Managed care companies, the report concludes, "receive more than an adequate amount of funds to deliver the Medicare package of covered services."

In addition, the Inspector General's report says Congress should consider two other facts when managed care companies lobby for more federal money. First, Medicare+Choice plans may be substantially overpaid because they have "enrolled a disproportionately higher share of beneficiaries with better than average health status." Second, managed care companies "charge excessive administrative costs to Medicare as part of their annual submissions to HCFA of revenue needs."

Indeed, a report earlier this year by the Inspector General found that many of the same HMOs that have reduced benefits for senior citizens are simultaneously billing the program for exorbitant administrative costs, such as parties, gifts and tickets to sporting events. For instance, one insurer billed Medicare (thus, taxpayers) $249,283 on food, gifts and alcoholic beverages; and four HMOs spent $106,490 for sporting events and theater tickets. (15)

Wilensky also chairs the Medicare Payment Advisory Commission (MedPac), a panel created by federal law that advises Congress on issues affecting the Medicare program – particularly what its reimbursement rates should be for private managed care programs, nursing homes, hospitals and physicians. And MedPac, under Wilensky's leadership, has been scolded for tilting too favorably toward health care companies.

In April, for instance, MedPac recommended that hospitals receive an automatic 4 percent increase from Medicare for inpatient care. MedPac's suggestion sparked a stern letter from Rep. Bill Thomas (R-Calif.), the chairman of the House Ways and Means Subcommittee on Health. "This is more than the hospital industry itself has been asking for in legislation," Thomas wrote in a letter to Wilensky jointly authored with Rep. Fortney "Pete" Stark (D-Calif.), the subcommittee's ranking Democrat. (16)

More importantly, the congressmen said, the rate hike recommended by MedPac seemed unwarranted. "[W]e do not see the hard data that supports such a multi-billion dollar across-the-board increase," Thomas and Stark wrote to Wilensky.

Their letter went on to say that without such substantiation, MedPac looked to Congress like it was "simply being an organized forum for the voice of self-interested lobbying."

Influential Lobbyist Steelman Also Advises Bush

Bush's health care policy has been influenced by another adviser with a financial interest in drug companies and managed care companies – Deborah Steelman, one of the top health care lobbyists in Washington, D.C.

Her lobbying firm, Steelman Health Strategies, has received $6.5 million over the last three years from drug companies, managed care companies, health insurers and health care industry associations with a direct stake in the future of the Medicare program in general and a prescription drug benefit in particular.

Steelman's client list is impressive. Her stable includes the biggest health insurers and managed care companies in the country: Humana, UnitedHealth, Cigna, Aetna and Prudential. It also includes some of the largest drug companies, such as Pfizer and Bristol-Myers Squibb, in addition to the industry's trade association, the Pharmaceutical Research and Manufacturers of America, or PhRMA.

Source: 1997 figures from Center for Responsive Politics (www.opensecrets.org); 1998 & 1999 figures from Lobby Disclosure reports filed with the Clerk of the House and Secretary of the Senate pursuant to the Lobby Disclosure Act of 1995.

But Steelman is more than just a hired gun for drug and managed care companies. She is a GOP donor ($73,500 in the last two election cycles), a fund-raiser and an adviser to George W. Bush's presidential campaign. "Deborah Steelman is as politically wired as they come," according to The St. Louis Post-Dispatch, in Steelman's home state of Missouri.

Indeed, Steelman's dual roles as lobbyist and policy adviser have led critics to charge that she has "blurred the ethical line between her lobbying and public policy work," The St. Louis Post-Dispatch said.

Nevertheless, Senate Majority Leader Trent Lott wasn't bothered by Steelman's obvious conflicts. Lott appointed Steelman to the Bipartisan Medicare Commission that was charged with determining the fate of the program, and, not so coincidentally, the future of the industries she represents. The Commission's leading proposal for changes to Medicare, which was never adopted as a recommendation to Congress, resembles the Bush proposal in many ways.

It should come as no surprise that Republicans on the commission wanted to give more taxpayer money to private managed care companies in the short term and privatize Medicare in the long run. It should also be no surprise that the Bush plan wants to "put an overhaul of Medicare on the ‘fast track,'" according to The New York Times and transform the 35-year-old government insurance program into a "largely private health care marketplace."

Gail Wilensky and Deborah Steelman would be two of the best-positioned people to accomplish this goal in a Bush administration. And given their personal financial investments (in the case of Wilensky) and industry clientele (in the case of Steelman) they would profit considerably if successful.

Appendix A

Below is a brief description of the companies in which Gail Wilensky holds 297,442 shares or stock options (as of Sept. 20, 2000).

Advanced Tissue Sciences (ATIS) turns living human cells into replacement tissue to repair damaged skin, cartilage and veins. The La Jolla, California company announced in May that it received a $10 million federal grant (in conjunction with two universities and two other businesses) to grow human heart tissue. The use of stem cells "will be a major thrust of the project," according to ATS. Stem cells are taken from embryos – either from aborted fetuses or from embryos created through in vitro fertilization that are not going to be used. Stem cell research is adamantly opposed by pro-life and conservative groups and politicians. George W. Bush, according to campaign spokespeople, "opposes federal funding for stem cell research that involves destroying a living human embryo."

Gentiva Health Services (GTIV) is one of the biggest home health care services firms in the U.S. with nearly $1.5 billion in sales last year. GTIV provides specialty pharmaceutical services through 40 pharmacies nationwide as well as care management and coordination for managed care companies. Gentiva is based in Melville, N.Y.

Manor Care (HCR) operates about 300 nursing homes and 45 assisted-living and outpatient facilities in some 30 states, with about 60% of its operations in Florida, Illinois, Michigan, Ohio, and Pennsylvania. Manor Care recorded over $1.2 billion in revenue in 1999 and is located in Toledo, Ohio.

Quest Diagnostics (DGX10L06) is the world's largest clinical laboratory performing more than 50 million routine tests a year for large pharmaceutical companies and HMOs, as well other labs. Quest was spun-off from Corning in 1996 and is currently owned, in part, by the drug maker SmithKline Beecham. The company is headquartered in Teterboro, N.J.

St. Jude Medical (STJ) develops and markets devices to treat cardiovascular disease and is the world's leading manufacturer of mechanical heart valves (its valves are used in about half of all implant procedures around the world; more than 1 million have been implanted). St. Jude's products are sold in more than 100 countries with sales over $1 billion in 1999. The company is located in St. Paul, Minn.

Shared Medical Systems (SMS) is one of the largest international healthcare information system companies, serving integrated delivery systems, major medical groups and academic medical centers in 20 countries. SMS has strategic alliances with MDeverywhere and drkoop.com as part of a network of on-line information delivery systems to 5,000 health care organizations. SMS is a subsidiary of Siemens Corporation, the U.S. arm of German conglomerate Siemens AG. It is based in Malvern, Penn.

Syncor International Corp. (SCOR) manufactures time-sensitive radioactive pharmaceuticals used for the imaging of human organs. Through subsidiaries, Syncor owns and/or operates over 50 medical imaging centers and specialized pharmacy service centers around the world. Syncor recorded $449 million in revenue in 1999 and is based in Woodland Hills, Calif.

UnitedHealth Group (UNH) offers a variety of health care plans and services, including HMO, PPO, and POS (point-of-service) plans as well as Medicare and Medicaid options to enrollees over 50 (including the members of AARP). UnitedHealth Group recorded almost $20 billion in sales in 1999 with profits of $568 million. UNH is headquartered in Minnetonka, Minn.

Endnotes

1. Amy Goldstein, "States Would Play Big Role In Bush's Plan for Medicare," The Washington Post, Sept. 6, 2000, p. A6. Goldstein describes Wilensky as "senior advisor" to Bush. Robin Toner, "Experts See Fix for Medicare as One Tough Proposition," The New York Times, Sept. 11, 2000. Toner describes Wilensky as a "top Bush health adviser." Jonathan Gardner, "The Bush Inner Circle," Modern Healthcare, July 3, 2000, P. 34. Gardner describes Wilensky and Steelman as part of "The Bush inner circle." John Broder, "Bush Adviser Tied to Companies," The New York Times, Sept. 21, 2000, P. A20. Broder says Wilensky is a "principal author" of Bush's plan.

2. ABC, PBS, U.S. News and Business Week all describe UnitedHealth Group as the nation's second-largest HMO. Bob Jamieson, "HMO to Docs: You Decide," ABCNEWS.com, Nov. 8, 1999; "What the Doctor Ordered," PBS News Hour with Jim Lehrer, Nov. 9, 1999; Major Garrett, "HMO Reform," U.S. News Online, Nov. 13, 1999 and Phoebe Eliopoulos, "HMO Execs Debate How to Heal Their Image," Business Week Online, Feb. 8, 2000.

3. Wilensky's holdings in companies in which she is a director come from the most recent proxy statements filed with the federal Securities and Exchange Commission. (Proxies detail compensation for directors and officers.) This information can be found quickly by linking to www.10kwizard.com. In the "word search" section type in "gail r wilensky" (do not use a period after "r") Under the "form group" box, click on "proxies." Hit "search" and the list of proxies should come up on the screen. Look for most recent links and click on one. Click on Wilensky's highlighted name and keep scrolling down until you see that part of the proxy that details her holdings (other director compensation such as annual fees will also be available). Note: the proxy for UnitedHealth shows Wilensky with 70,750 shares and options. But she sold 16,000 shares in May 2000, after that filing, according to Vickers Stock Research.

4. All directors and officers of companies are required to report their stock transactions to the SEC. According to Vickers Stock Research (working from SEC filings), Wilensky sold 16,000 shares of UNH on May 12, 2000 for $70 per share.

5. To estimate fees that Wilensky should receive for attending board meetings, Public Citizen went to the Annual Reports and Proxy Statements that the eight companies filed with the SEC. Each filing details the fee paid per meeting and the number of meetings held last year. However, the filings don't say explicitly how many meetings Wilensky participated in; nor do all of the filings distinguish between board meetings, committee meetings and telephone meetings. Instead, the filings contain statements such as "All of the directors attended at least 75 percent of the board meetings." Extrapolating from those statements, and assuming that Wilensky attended 75 percent of the meetings. Public Citizen estimates that Wilensky could receive at least $50,000 this year. The figure could be much higher. Last year, the eight companies held 72 directors' meetings in all, with fees paid to directors ranging from $500 to $2,000 per meeting.

6. In 1999, Wilensky was granted 54,667 stock options. The total at the bottom of the table says 56,667. The discrepancy occurs because she became a director at Gentiva this year. Thus, those 5,000 options are not counted in the 1999 total. However, UnitedHealth made a special grant of 3,000 additional options to all non-employee directors in 1999.

7. Syncor's 2000 compensation policy for non-employee directors uses the Black-Scholes method to approximate the fair market value of options. For 2000, the Board of Directors has approved a stock option grant for each non-employee director with a Black-Scholes value of $70,000, or 74% of the annual compensation opportunity. If at the time of the grant, the Black-Scholes option value per share is, for example, $17.90 then the non-employee director will receive on the date of appointment or re-election for a 3-year term an option to purchase 11,732 Syncor shares ($70,000/$17.90 x 3 = 11,732 shares).

8. PRNewswire, "UW Partners with Advanced Tissue Sciences and Others in $10 Million Grant to ‘Grow' Human Heart Tissue," May 22, 2000. Press release from Advanced Tissue Sciences explains grant project that will use stem cell research.

9. Edward Walsh, "Cheney Says He'll Forgo Stock Options," The Washington Post, Sept. 2, 2000, p. A1.

10. Goldstein, See n. 1.

11. Robert Pear and Robin Toner, "Clear Choice for Voters: Bush Health Plan Falls Into Party Line, Emphasizing Smaller Government Role," The New York Times, Sept. 6, 2000, p. A1.

12. Jennifer Waters, "Flight from Medicare Adds Two," CBS.MarketWatch.com June 30, 2000, describes UnitedHealthcare's retreat from Medicare.

13. UnitedHealth Press Release on Business Wire, "UnitedHealthcare to Discontinue Medicare+Choice Contracts in 21 Counties," June 30, 2000. The company's press release also details UnitedHealth's decision.

14. Office of Inspector General June Gibbs Brown, Department of Health & Human Services, "Adequacy of Medicare's Managed Care Payments After the Balanced Budget Act of 1997," (A-14-0-00212), Sept. 18, 2000.

15. Office of Inspector General June Gibbs Brown, Department of Health & Human Services, "Review of the Administrative Cost Component of the Adjusted Community Rate Proposal at Nine Medicare Managed Care Organizations for the 1997 Contract Year," (A-03-98-00046), issued January 2000, p. 7.

16. Rep. Bill Thomas, chairman, and Rep. Pete Stark, ranking minority member, House Ways and Means Subcommittee on Health, April 14, 2000 letter to The Honorable Gail Wilensky, Chair, Medicare Payment Advisory Commission.

17. Deirdre Shesgreen, "Lobbyist Is Tough, Tireless and Aptly Named," St. Louis Post-Dispatch, August 8, 1999, p. A8.

18. Robin Toner, "Experts See Fix for Medicare as One Tough Proposition," The New York Times, Sept. 12, 2000.

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